Pin Bar Candlestick Pattern is used in the technical analysis to identify periods when the current trend reversal is likely. In other words, Pin bars help binary options traders to get profitable entry signals or exit from recent trading cycles in time. The pattern reflects strong support or resistance level when a downtrend or uptrend is losing previous strength. However, this is just a preliminary sign and it might or might not lead to the trend reversal. Therefore, it requires additional confirmation for other bars on the price chart or fro, secondary technical instruments such as trend and momentum indicators, for example.

A Pin Bar Pattern consists of one price bar, typically a candlestick price bar, which represents a sharp reversal and rejection of price. The Pin bar reversal as it is sometimes called, is defined by a long tail, the tail is also referred to as a “shadow” or “wick”.

Basically, the Pin bar Pattern is a single-candlestick formation with a graphical representation of the process happening in the binary options market. It shows the price action occurred inside one period (day or hour depending on the chosen time frame). At the same time, Pin bar can be used to analyze market conditions on a larger time frame, but trade with a shorter expiration time of binary options. Let have a closer look at the pattern features and learn how to take advantage of that.

What is a Pin Bar Candlestick Pattern?

A Pin Bar candle has a long upside or downside shadow (wick) with a comparatively small body. The length of the shadow has to be at least twice as much as the distance between the open and close prices. The longer the shadows are, the higher the likelihood of a price reversal is. The color of the body does not matter, it can be whether bullish or bearish. The main requirement for the pattern is that it has to come after a sustainable trend. Otherwise, it would not reverse anything.

Another thing that matters for potential counter-trend action is the color of the candle following the Pin Bar formation. If it has a different color compared to the previous trend, then the counter-trend movement of an asset price is more likely. There are also double-candle patterns having a Pin Bar as the first candlestick. So for example, if two candles in a row have downside shadows after a strong downtrend, then the bulls are too strong for the bears to overcome the demand for CALL options. Thus, a reversal is getting more probable.

What is a bullish Pin Bar?

A bullish Pin Bar is a single candlestick pattern with a long downside shadow and small body (green or red). The main requirement for the downside tail is to be two times larger than the size of the body. If a bull Pin Bar appears in the middle of an uptrend or a sideways consolidation range, then it has to be considered as more of a continuation pattern, depending on other market conditions. Besides, the bullish reversal has to be confirmed by the following candle after the Pin Bar occurred on the price chart.

This formation describes such price action. The bears were pushing the price lower as a continuation of the previous downtrend. At some point, the call-option buyers stepped into the market with heavy volume demand, absorbing the volume of supply offers. As a result, the price action reversed and the rate closed the period near the open. Thus, the downside tail represents a strong support level. If the bulls were able to develop the success and kept lifting prices upwards, then the trend reversal would have more chances to complete the formation. Therefore, buying CALL options after the reversal pattern confirmed would be reasonable.

An example is shown below:

What is a bearish Pin Bar?

A bearish Pin Bar has a small body size and a long tail above it. The colour of the body does not play a significant role as the main requirement is the context. The pattern has to come after a strong uptrend and signal a powerful defensive barrier for the bears. In other words, a bearish Pin Bar inside a downtrend would not mean anything for the direction of the price change. Another requirement for the reversal candlestick to be sustainable is that the length of the tail has to be at least two times larger than the size of the body.

Imagine a long-term uptrend on a daily chart. The bulls used to lift the price, charting the sequence of higher highs and higher lows. However, the bears refused to give up at some attractive price level and started buying a large number of PUT options for the underlying asset. As a result, the bulls could not overcome the offer, and the price dropped back to almost where it started the day. If the next daily candle was in the red, then the bearish reversal would take place, promising at least a deep retracement.

Here is an example:

How to trade Binary Options with Pin Bar?

There are several methods of trading with Pin Bar candle. All of them have to comply with the individual trading strategy, money and risk management rules, the preferred expiration time and so on. Thus, before using any trading strategy on a real account, binary options traders should backtest it on the demo without risking own money.

Pin Bar trading has to come in line with the context. Actually, the main goal of a Pin Bar indicator is to deliver a preliminary signal to a trader that something is wrong with the previous trend. After the signal received, traders should use additional metrics to make sure that the trend reversal is in place. The main concern is that strong trends do not reverse just like that, without a reason. So further price action must convince traders that the previous trend is over. Sometimes it happens that, for example, the bulls had to re balance the supply/demand ratio at some important price level, regain the momentum and continue the recent trend in the same direction. This is why an additional confirmation is needed for profitable trading decisions with Pin Bar candle Patterns.

If you like this strategy(article), you might also be interested in this: Stochastic OscillatorAnother scenario suggests a long-term analysis but a short-term trading cycle. For instance, if a bull Pin Bar was spotted after a downtrend on a daily time frame and the next candle confirmed the reversal, then traders could switch to a shorter time frame, find active hours during a trading session and buy CALL options with 60 minutes expiration time several times in a row. This method would allow traders to maximize the profit from the counter-trend price action. The list of trading conditions using Pin Bars is represented below.

Conditions for buying CALL options on a bullish Pin Bar

If a sustainable downtrend was noticed and a bearish Pin Bar appeared on the price chart with a long downside shadow and small body, then traders should get ready for buying CALL options;

If a candlestick that follows the Pin Bar closed the period in the green, then traders should start buying CALL options on the next bar open;

If the price action was moving in the correct direction and deals were profitable, traders should continue the cycle of buying CALL options until the uptrend was exhausted;

If the price action reversed back to bearish and a candle closed below the Pin Bar lower tail, then traders should stop buying CALL options.

Conditions for buying PUT options on a bearish Pin Bar

If a sustainable uptrend was spotted and a bullish Pin Bar appeared on the price chart with a long upside shadow and small body, then traders should get ready for buying PUT options;

If a candlestick that follows the Pin Bar closed the period in the red, then traders should start buying PUT options on the next bar open;

If the price action was moving in the correct direction and deals were profitable, traders should continue the cycle of buying PUT options until the downtrend was exhausted;

If the price action reversed back to bullish and a candle closed above the Pin Bar upper tail, then traders should stop buying PUT options.

Examples of profitable trades

Buying CALL options for gold after a bullish Pin Bar candle

The hourly chart below shows the intraday price action of the price of gold. The yellow metal was declining before the bullish Pin bar pointed to a strong support level. After the reversal pattern was confirmed by the next candle.

The chart below shows the exchange rate of the U.S. dollar versus the Mexican Peso on 60 minutes timeframe. The USD/MXN currency pair had a volatile intraday trading session with several reversals of the trend direction. In the first case highlighted on the chart, the bulls were losing the momentum and a double Pin pattern signalled a bearish reversal.

After the opposite signal was spotted to the bullish double Pin Bar, the call-options were in demand again:

Conclusion

The Pin Bar is a single candlestick reversal pattern, delivering a preliminary signal to enter the market in the opposite direction to the previous trend. The formation requires an additional confirmation whether by the following candle or a secondary technical indicator. There are several techniques of profitable trading using Pin Bars, however, all of them must come in line with the individual trading strategy and risk-management rules.

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